Finances for Aggregate US Corporations Analyzed
In the analysis of the aggregate U.S. corporate financial performance some interesting and sometimes startling issues can be seen via the graphical representation. Starting with the revenues of the aggregate companies I divide them through research by the amount that comes from publicly traded companies and the amount coming from private companies. This can be viewed in the following chart. Remember for reference, #1 is 1996 and #12 is 2007.
The incremental annual revenue change to the incremental gross profit change to the incremental net operating income (NOI) change shows the different periods of struggle to maintain margins for the aggregate companies. #6 and #7 show the trauma of 9/11 and the recession in 2001 and 2002. While the gross profit did not incrementally keep up with the incremental change in revenues after this period – the NOI did go up dramatically due to the leaning of operating expenses.
Cash flow before financing (after tax) begins to deteriorate in 2007 before the Great Recession of 2008 – 2009. This is the best indication of cash flow to a company and might have been the indicator that, even though companies were making more net income, they were not converting as much into cash flow as in the prior years.
The aggregate balance sheet of the companies shows a great deal of investment into other assets. Under detailed analysis one might find that much of these other assets is not necessary to the operation of the business. In many cases one would have to ask why this money – used to purchase the assets – was not just distributed to shareholders. Ah yes, a lot of it is intangible goodwill but when you look at the overall aggregate investment performance of these companies one would have to assume that the goodwill purchased along with other intangibles did not warrant the investments.
Using stringent banking requirements that many smaller private companies must meet, the aggregate borrowing (including current liabilities) shows an over-borrowed position relative to total assets. This situation proves to be a complete disaster entering into the Great Recession of 2008 and 2009.
This chart shows how over the last several decades the aggregate U.S. companies have moved from a net positive trade cycle (more accounts receivable and inventory to accounts payable) to a net negative cycle with a vengeance. Negative net trade cycles work great when the revenues are growing but when they contract the negative trade cycle has results like a category 5 hurricane – catastrophic! The recession of 2008 – 2009 brought many companies to their knees and this type of financing, along with being over-borrowed, was one of the primary reasons for the extraordinary amount of failures.